SRI: Why the landscape will change for funds starting March 1
March 1 officially marks the effective date of the SRI label reform, which introduces significant changes to the investment landscape.
The new criteria imposed on investment funds seeking to obtain this coveted label—which guarantees the integration of environmental, social, and governance (ESG) principles—will redefine selection standards. Funds already in operation will have until the end of the year to comply with these new requirements.
Implementing these measures poses a major challenge for asset management firms. According to data from Epsor, an expert in employee savings plans, half of the funds bearing the label invested in fossil fuels in 2023—a practice now prohibited under the label’s new version. As a result, many funds will have to revise their strategies. “TotalEnergies, which is included in one out of every five of the most widely held funds, finds itself in a delicate position,” notes Epsor.
In addition to these restrictions, new constraints have been introduced, such as the exclusion of the 30% least sustainable companies from the investment universe—an increase from the previous threshold of 20%. More specific commitments at shareholder meetings are also required, as well as a minimum weighting of 20% for each ESG pillar in the assessment of companies. “This approach forces us to take all aspects into account,” explains Michèle Pappalardo, chair of the SRI label committee.
Beyond considerations about whether or not to keep companies such as TotalEnergies in their portfolios (whose stock price has risen by more than 50% over three years, driven by geopolitical tensions), fund managers are facing an increased workload and additional costs to maintain the certification.
At some asset management firms, decisions have already been made. At AXA IM, the majority of its 72 SRI-labeled funds will not undergo any fundamental changes, while the rest will choose to forgo the label. Amundi, the European leader in the sector, is still assessing the impact of the label’s new requirements on its products and their implementation.
The cost-benefit ratio will be closely scrutinized. For some fund managers, the label’s impact on fundraising remains relatively limited. “The label may have boosted fundraising in 2019, when insurers were required to offer at least one labeled fund in their life insurance policies, but since then, its impact has been limited because it now covers a wide range of investments,” explains Philippe Zaouati, CEO of Mirova.
The reform of the SRI label is driven, in particular, by a need for clarification. The inclusion of major oil companies, among others, was obscuring the message for investors seeking to invest responsibly.
